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(Cost of equity) The common stock for the Bestsold Corporation sells for $57. If a new issue is sold, the flotation costs are estimated to be 8 percent. The company pays 60 percent of its earnings in dividends, and a $3.00 dividend was recently paid. Earnings per share 5 years ago were $3.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm's marginal tax rate is 37 percent. Calculate the cost of (a) internal common equity and (b) external common equity.
a. What is the firm's cost of internal common equity? % (Round to two decimal places.)
You are an analyst at a large firm. To estimate the weighted average cost of capital,
A proposed project lasts 5 years and has an initial fixed asset investment of 2 million dollars, depreciated straight line to zero over the project life. Has an initial investment in networking capital of 200,000. Tax rate is 34%. There is a required..
The nominal interest rate is 3 percent, but people expect prices to fall by 4 percent. What is the real interest rate?
Assume a bank originates a pool of short-term real estate loans worth $15 million with maturities of 5 years and with annual interest payments of 7 percent.
Insider trading: if someone learns something that is going to affect the price of the stock or profits and reveals it, what are they liable for? What would they be responsible for? Who will be in trouble if the SEC sanctioned someone? If someone acts..
Consider a binomial model with u = 1.02,d = 100 102, δ = 0 and interest rate r of 5% a year, compounded continuously. Using T = 1 maturity of one year, initial stock price S(0) = 100 and N = 4 periods, and the premium of the European Put PE(K) for K ..
How much would a pension fund pay for the Calgary parking authority business that earns a perpetual 40mm that grows with inflation? Ignore taxes and use 5% discount rate
What is variable life insurance? What are the advantages and disadvantages of variable life policies? How can individuals avoid the high fees of variable life insurance?
An investment has a required return of 13 percent. The cash flows, in order, are -$42,000 (initial cost), $16,500 (year 1 CF), $28,400 (year 2 CF) and $7,500 (year 3 CF). Based on IRR, should this project be accepted?
Project A has an initial cost of $80,000 and provides cash inflows of $34,000 a year for three years. Project B has an initial cost of $80,000 and produces a cash inflow of $114,000 in year three. The projects are martially exclusive. Which project(s..
Ivan Knobel holds a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. He is in the process of buying 1,000 shares of Syngine Corp at $20 a share and adding it to his portfolio. Syngine has an expected return of 13.0%..
In your own simple words, compare the usefulness of the IRR rule and NPV rule for capital budgeting decisions. Explain how they are connected and outline how to give meaning to the imaginary roots of the IRR equation.
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